Raising capital is one of the most valuable skills in business. With it, you can fund a startup, scale an existing business, or make yourself an asset to any organization.
Every step from an idea to a functioning business increases its value to investors. The more progress you make, the better. If you have capital, use it to gain as much traction as possible before seeking outside investors. Some situations may not allow this, but you can always create at least some traction.
Investors want to see a business, not just an idea. Take the story of Steve Madden shoes: Jordan Belfort got 85% of his company for just $1 million because Madden had no plan and didn’t negotiate. Belfort immediately flipped 50% for $1 million, effectively owning 35% for free.
When approaching investors, consider:
Your company value changes based on funding and milestones:
Cold emailing VCs rarely works. The best way to connect is through a warm introduction from someone they respect.
People who can introduce you to investors include:
Equitynet is a great place to connect with investors, you can create a list of investors that invest in pre-revenue companies that you haven't messaged yet, even narrowing it down to those that stated a keyword; it does cost $299/mo but if they respond it's worth it. Angellist is well known, but doesn't really allow companies to reach out to investors. Some people who can offer warm introductions to venture capitalists and angel investors below:
Networking opportunities:
Be authentic if people sense you only want their connections, they will avoid you.
StartEngine is the best crowdfunding platform, handling most of the process for a fee. WeFunder is a solid alternative but requires you to do your own marketing.
To succeed on WeFunder, you'll need:
StartEngine provides regulatory guidance, while WeFunder may have resources you need to check for yourself.
To get an SBA loan, you generally need a credit score of 600+, a clean criminal record and $20k in liquid capital makes you a good credit risk for them. You should have some relatable work experience (sales, marketing, management; does not have to be specific to the business you're acquiring or starting as you can hire those specific skills.) Your personal balance sheet should be positive with a good amount of assets and liabilities at a reasonable level. You should have a few good years of employment and income, as they'll ask for your tax returns & W2 and personal financial statement (includes all of your personal assets and liabilities) they'll give you an estimate of what they'll be willing to lend most likely. If the business is dynamite (either an existing business you're buying via 7(a) loan or one you're starting) then you should be able to get an SBA loan, of course unlike equity financing you have to take money out of revenue for debt service; so you'll likely need more capital than with equity financing.
The maximum SBA loan is $5 million, if it's for a startup (ie doesn't already have existing cashflows that would cover 1.25x loan payments) then they expect your assets to equal the loan value. Because the government backs 75% of the amount for loans over $150k (85% for loans below $150k) a down payment of 10-20% smoothes over a lot of the risk aversion with the bank, but even at 25% down (ie no risk to the bank) they still take the decision seriously. For large loans, they usually want 680+ credit score (if you don't have this, work on building a good credit history and in the short term you can find a co-signer or a partner in the business even 1% share for co-signing may be worth it to them but they are taking on risk and will want to know they're getting a piece of a low risk viable business.) If you sell 25% of your business for $1 million and own the remaining shares, you may be able to show a $3 million asset in the form of shares of your company for the purpose of securing the loan (realistically, it will show value in your business that you sold 25% for a million dollars; investors valuing it will make a bank take it seriously.) For large loans for a startup, it should be an exceptional business plan to get financed; but equity financing is generally preferred since debt usually requires making payments when trying to build the business. You may be able to get an express loan of up to $500k which has faster approval and less paperwork, may have beneficial policies to veterans; these require 2 years of operations and collateral. It can also be beneficial to apply with a bank you have an existing relationship with.
Final Thoughts: Raising capital is about building value, networking, and presenting a compelling opportunity. The better prepared you are, the more leverage you have in negotiations.